I was probably a teenager when I first heard J. Reuben Clark’s classic explanation of the power interest has on those in debt. I remember the uneasy feeling I had. I caught a glimpse of the bondage of debt. I wanted to do whatever I could to avoid having interest as my constant companion.
“Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation. … Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”
I also remember learning, at about the same time, the principle “Those who understand interest earn it. Those who don’t pay it.” It was clear to me which side of interest I wanted to be on.
Still, years passed and life happened. We knew exactly what we were doing when we chose to go into debt (thought there are still things I would have done differently). We don’t like this debt thing very much, so we’re trying to get out of it as fast as we can. It will be refreshing to be just earning interest and not paying it anymore!
Kids Get It
Our young children understand interest. We are open with them about our debt situation and we use it to teach them about debt. They know that interest makes the amount of money that we have to pay grow. They know that the longer it takes us to pay back Daddy’s law school loans, the more we will have to pay. They know that if we pay the loans quickly we will pay much less.
The other day we were talking about interest at the dinner table. My kids were asking how banks make money. (It was mainly the 5- and 6-year-old, the nearly 3-year-old was pretty involved in his dinner.) We explained that people let the bank hold their money because the bank pays them a little bit of interest. Then the bank gives their money to other people to borrow. When people borrow money from the bank, the bank charges the borrowers interest. The amount of interest the borrowers pay the bank is much higher than the amount of interest that the bank pays to people who let the the bank use their money, so the bank keeps the difference.
This was the first time we had talked much about the good side of interest. The kids picked up quickly. It was obvious to them that we would rather let the bank use our money and pay us interest, than borrow from the bank and have to pay them interest.
- When did you first grasp the concept of earning interest? Of paying interest?
- Do your kids understand both sides of interest?
- Have you felt the crushing and enslaving power of interest, as Clark describes?
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When my son was young and I was saving for his college education I took him with me when I took out CDs at the bank. He asked how that would help pay for college and I explained interest to him. I also told him he could open a savings account for his allowance, gifts etc. and he would get money for simply letting the bank hold his money for him. One day he brought me a fist full of dollars and asked me to put it in his savings account so he could get more money for it! My husband and I only invest in bonds and dividend paying stock. It is pretty cool sleeping or just sitting in our easy chair watching some mindless TV show and having the money just drop into our accounts.
That’s great Kathy! It’s so fun to see kids “get it.” I think it’s great that you brought him to the bank too. Nowadays with so much online, many kids (and grown-ups) never set foot in a bank!
“Those who understand interest earn it. Those who don’t pay it.” – I’ve never heard this before but I love it!!
Interest is a terrible beast. I don’t have any kids to teach about it yet… and I was never taught about the upside of it. I understood debt was bad but I didn’t know banks would pay you to keep your money there until I was in my early 20s.
Once I started making a little bit in interest, I was totally hooked. I’m addicted to saving 😉
That’s awesome Bridget! Interest can be really exciting and addicting when it’s on your side!
Growing up in the 70’s, I remember interest rates hitting 18% for mortgages. People couldn’t move as they couldn’t afford a new mortgage. I also learned that, “it takes money to make money” and that investing with high interest rates was incredibly beneficial.
It was also eye-opening when I saw my first mortgage amortization schedule and learned the power of paying extra principle every month in order to reduce the overall interest expense….some months the extra payment has only been $11 and one month $1,000!
Holy cow- 18% interest rates on mortgages!! Crazy! It really is incredible how paying a little extra each month toward principle will take off years of your mortgage!!
I learned about interest at age 12, I had worked a few years on our family farm and earned enough to put my money in a high interest cd (at the time it was 5%). That money plus scholarship allowed me to go I college without taking debt. And we would have been debt free had it not been for my husbands jd 😉
While I respect the good chuck of money that is ripped from our debt payment each month, I’m also grateful for the opportunities it’s provided us: fulfilling jobs that we love and a house that is wonderful. I guess in the end while I want to get rid of our debt and won’t lightly enter into more debt, I respect the institution of interest and will use it in the future to make money in the future. However, my life is crazy blessed and I can respect the trepidation of others who haven’t been so lucky.
That’s awesome that you were able to save enough, along with your scholarship to be debt free after school. I’m glad that you can see the blessings and opportunities that your husband’s debt has provided you. It’s never fun to pay back debt, but seeing your blessings and having a good attitude really helps with the repayment!
I think that paying interest is necessary for some people. After all, you said it yourself that is how banks make money. Someone has to pay the money for me to make it back from the bank. Right?
I try to always be on the earning side of the interest equation, and now that we are getting ready to buy a house I know we will be on the paying side again. Hope fully not for to long though!
Very true CeCee. You definitely want to stay on the earning side as much as possible, but paying interest is also sometimes necessary too.
I mega loathe interest. It is the devil. It is unnecessary. It is a plague on the financial crops of life. Did I mention I hate interest? 🙂
It sounds like you’ve had some experience with the painful side of interest Mari!!
My mother never had a bank account after my father cleaned it out when he deserted her with 2 little kids. When I got my first after-school job at 16, my grandmother opened an account for me. She was surprised that I had never been inside a bank.
My grandmother taught me about budgeting and the power of interest. Back then the banks paid 5 percent interest on regular savings. You could really watch your savings grow. I worked 30 hours per week at $1.30 per hour, and even on that small amount I had $1,000 saved the first year.
I raised my daughter to be financially literate. She is now 30 years old and will be finished with her mortgage in less than 2 years. That’s not bad for a single person with a high school education.
Diane, that is great that your grandmother was there to teach you and that you could learn the power of interest and saving at a young age! It sounds like you’ve got your daughter on the right track too! Amazing!!